Raising the Debt Ceiling Is Paying Our Bills

Rep. Andy Barr (R-KY) is confused:

President Barack Obama says we need to pay our bills. I agree. But raising our debt limit without reform is not paying our bills. It is asking China, bond holders and other creditors to pay our bills.

The president says we need to avert a default. I agree. But raising our debt limit without any reform is not averting default. It is merely postponing default. Instead of simply opening up a new credit card in our childrens’ name because we’ve maxed out all of our own, we must take responsibility and stop business as usual in Washington. We owe it to our children and grandchildren to end the spending spree and start making the tough choices that will finally force the government to live within its means.

Here’s how U.S. fiscal policy works: The federal government takes in a certain amount of money and spends a certain amount of money each year. Congress passed laws that dictate what people have to pay to the government and how much the government will spend. In the U.S., the federal government almost always spends more than it takes in. It makes up the difference by taking on debt, but the debt ceiling prevents us from taking on more debt. It doesn’t change how much we’re spending or taking in. When Congress refuses to pay the debt ceiling, it stops us from making up that gap. The amount we owe doesn’t change. We just aren’t paying our bills.

The part about China is particularly bad. Rep. Barr really thinks that raising the debt limit is us asking China to pay our bills? China’s decision to purchase Treasuries has nothing to do with helping the U.S. out. China makes its own fiscal policy decisions that it thinks is best for itself, not the United States.

Finally, raising the debt ceiling without reforms does nothing to our odds of a future default. In fact, the only reason there is a chance the U.S. breaches the debt limit in the future (and I don’t think there is one) is the Tea Party’s willingness to do so. In a sane world, Congress would abolish the debt ceiling and there would be zero chance of a U.S. default, but sadly we don’t live in a sane world. Raising the debt ceiling now only increases the odds of a future default in that it makes Tea Party Republicans even more anxious to commit economic suicide.

The End of Debt-Ceiling Hostage Taking

Greg Sargent had a good post yesterday explaining why Democrats are so adamant that they will not give any concessions for raising the debt ceiling:

Democrats, by contrast, don’t believe this constitutes acceptable governing. They don’t believe budget negotiations should proceed under these conditions. They are not making an argument about what the House majority can legally or Constitutionally do; they are making an argument about what they believe the House majority should and shouldn’t do, about what does and doesn’t constitute good governing. They are making an argument about governing norms. The Dem argument is that this practice should be renounced by both sides. Dems believe making concessions under these conditions now will legitimize the GOP demand for negotiations to happen under them, making default later all but certain, because this sort of standoff will happen again and again, ultimately leading to miscalculation and disaster.

Bingo. The key here is that Republicans only have leverage to extract concessions out of Democrats if they really are OK with breaching the debt limit. There are some who are, but the House GOP leadership isn’t. That’s been abundantly clear for weeks now as Boehner has repeatedly commented that the U.S. cannot default on its debts. It’s even clearer if you look at how House Republicans have ramped down their demands.

After Boehner’s plan fell apart in the House yesterday, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell stepped back in and quickly brokered a deal that would stave off a default. It funds the government until January 7 and raises the debt ceiling until February 15 while strengthening the income verification requirements in Obamacare. It does not include a delay of the reinsurance fee, of the medical device tax or a ban on the Treasury Department’s use of extraordinary measures. It also sets up a bicameral conference committee with the goal of coming to a budget agreement by December 13.  Make no mistake: this is a Republican surrender. The income verification condition is simply an enforcement of current law. The rest is a clean CR and clean debt ceiling hike, exactly what President Obama and Democrats have been calling for the past month.

Due to parliamentary rules, a single senator (cough Ted Cruz cough) could drag out the Senate bill so a vote doesn’t take place until Saturday or Sunday. If all senators agree by unanimous consent to forego debate on the bill, it can be voted on today and head to the House, but that requires the agreement of all senators. If the bill originates in the House and is passed, the Senate can take it up and vote on it soon after. Thus, House Minority Leader Nancy Pelosi is pushing Boehner to bring it to the floor to speed up this entire process. No matter what though, it looks like the speaker will allow a vote on the bill, which will then pass with mostly Democratic support.

There is a more important point here: This is the end of debt-ceiling hostage taking.

It’s over. Boehner and Co. capitulated completely, because their entire strategy was a bluff. This deal proves that Republicans aren’t willing to breach the debt limit. If Boehner ever threatens to do so again in the future, no one should take it seriously. He no longer has the credibility to make those threats. The debt limit is not an extortion device. A minority party cannot use it to extract a policy concession from the majority. This is the new governing norm.

Ban Extraordinary Measures

The past 24 hours have seen a mini-breakthrough in the stalemate over the government shutdown and debt ceiling  with House Republicans looking to pass a six-week debt ceiling hike in return for formal negotiations on the budget and a permanent ban on the Treasury Department’s use of extraordinary measures to extend the debt ceiling. President Obama has already come out against the condition of formal negotiations on the budget so this deal is a non-starter. But Boehner could easily downgrade the “formal negotiations” to a mere resolution seeking Democrats to negotiate, something non-binding and not a substantial concession. In that scenario, would Democrats accept a permanent ban on extraordinary measures? I hope so, not just because it will get us closer to a solution to both crises, but also because it makes policy-sense as well.

A quick recap: We actually hit the debt ceiling of $16.999 trillion in May, but the Treasury Department has been using some strange budgetary gimmicks to extend our borrowing authority. However, those gimmicks, known as extraordinary measures, have a limit and we’ll hit that limit next Thursday. After that, we default. An example of these extraordinary measures including delaying payments for public employee pension funds (more info here). That’s what Republicans want to permanently ban.

This makes a lot of sense. The only thing that using extraordinary measures accomplishes is delaying us from officially breaching the debt limit. But the only time Treasury actually has to use them are when one political party is looking to fight over raising the debt ceiling. Extraordinary measures delays that fight a couple of months. Think about it this way: why is having the debt ceiling fight now better than having it this past May? There never is a good time for these fights (and the debt ceiling should be abolished), but extending them for an undetermined period of time is pointless.

Since Republicans have not put forward an official proposal, Democrats haven’t commented on the idea of banning extraordinary measures. Wonkblog’s Neil Irwin offers one possible reason for White House opposition:

Such a step would give this and future administrations less leeway to influence when the debt ceiling becomes a binding constraint, so it won’t be shocking if the Obama administration opposes the idea.

One of the dirty secrets of the Treasury’s cash management function is that very few people on earth understand how it really works, and almost all of those people work for the Treasury. So Republicans on Capitol Hill have felt that they don’t have reliable information on when exactly they really, really need to raise the debt ceiling and when Jack Lew & Co. have more tools in their bag of cash management tricks.

That’s all true, but that doesn’t seem like a good reason to keep extraordinary measures. The minority party should never use the debt ceiling as a hostage, but if they are, it’s better for everyone that they have reliable information on when they need to raise the debt ceiling. If House Republicans want to wait until the last second to strike a deal, they really need to know when that last second is. Otherwise, there is a (small) risk we accidentally default. That’s a risk we don’t need to take.

In addition, it’s much easier for journalists and politicians to explain to the public when we hit the debt limit, instead of when Treasury can no longer use extraordinary measures to stop us from breaching it. It’s an unnecessary complication that confuses the public and simply delays a nasty fight with no real benefits. Let’s get rid of it.